AstraZeneca and Ranbaxy Win a Closely Watched Pay-to-Delay Case

In a closely watched case, a federal court jury decided that a so-called pay-to-delay deal between AstraZeneca and Ranbaxy Laboratories involving the launch of a generic version of the Nexium heartburn pill did not violate anti-trust laws.

This was the first time that a lawsuit over such deals went to trial since the U.S. Supreme Court ruled last year that drug makers can face greater antitrust scrutiny over pay-to-delay deals. In these arrangements, a brand-name drug maker reaches a settlement with a generic rival in exchange for ending patent litigation and an agreement allowing a copycat medicine to be launched at a future date.

In its 2013 ruling, the Supreme Court said such payments cannot be large and unjustified. The lawsuit, which began two years ago, alleged that wholesalers, pharmacies and consumers were overcharged for years as the result of a 2008 settlement of patent litigation between the drug makers. The plaintiffs claimed the agreement to delay the launch of a generic Nexium was worth nearly $1 billion to Ranbaxy, according to the lawsuit.

Although the jury agreed the deal was large and unjustified, and decided the value of the agreement was unreasonably anticompetitive, the settlement with AstraZeneca did not matter. The jury decided that, even without the deal, AstraZeneca would not have allowed Ranbaxy to sell a generic Nexium before the May 2014 patent expiration date. (here are the jury responses).

“The system worked,” J. Douglas Baldrige, an attorney for Ranbaxy, says in a statement. “The jury understood the facts of the case and was not swayed by wishful thinking on the part of the plaintiffs.” A spokeswoman for AstraZeneca, which faced billions of dollars in penalties, wrote us that “we have always maintained that the plaintiffs’ allegations were without merit.”

In a note sent to us, Thomas Sobol, an attorney for the plaintiffs, wrote that “the jury concluded that AstraZeneca officials… agreed to make a large and unjustified payoff to its generic competitor Ranbaxy in order to delay Nexium generics. Whether the later fact finding by the jury is consistent with those facts is under review. While we are disappointed with this stage of the process, we will continue to seek to vindicate this wrong.”

The trial garnered attention because it was seen as a possible sign that these deals would be restrained. In a report last year, the U.S. Federal Trade Commission estimated the deals cost Americans $3.5 billion annually in higher health care costs. The pharmaceutical industry contends the deals are not only legal, but actually allow drugs to reach consumers faster than if patent litigation continued.

Also known as reverse payment settlements, the deals emerged as an unintended consequence of the Hatch-Waxman Act that was designed to accelerate access to lower-cost generics. The FTC noted in a 2012 report that the number of deals had been growing and, after the Supreme Court ruling, agency officials vowed to redouble their efforts to scrutinize patent settlements for signs of antitrust activity.

Although the jury verdict was a win for the drug makers, one legal expert says the case may not be over. “This is not the end of the line for the plaintiffs,” Daniel Lev, an intellectual property attorney at Pierce Atwood in Boston writes, “because the district court will next consider whether the jury was appropriate and that decision will likely be appealed.”

[EDITOR'S NOTE: This story was updated to reflect the jury responses to specific questions, one of which noted the deal between the drug makers was not anti-competitive].

Comments (3 of 3)

If this outcome is an unintended effect of the Hatch-Waxman Act (which was passed in 1984), Ed Silverman will have to put a lot more effort into showing us exactly why he makes that claim.

A law made 30 years ago can certainly have a number of unintended consequences, but two companies colluding to keep commodity drug prices high smacks of plain old illegality, rather than unintended consequences.

9:16 pm December 5, 2014

SeekingSanity wrote:

As one who (along with my wife) got diddled by Pfizer in the same kind of a deal, I am totally disgusted with Congress's failure to deal with this. I can only attribute this to the fact that big pharmaceuticals make very large donations to PACs controlled by influential Senators and Representatives (including Alabama's senior senator Richard Shelby. This is what one can expect when we elect congressmen for life.

About Pharmalot

Pharmalot explores the fast-moving, complicated world that develops and markets medicines – and the drug makers that are attempting to replenish their pipelines while grappling with pricing and regulatory dictates, among many other challenges. Writer Ed Silverman has covered the pharmaceutical industry for nearly two decades and has closely followed the many hurdles facing drug companies as they move ideas from the laboratory to the medicine chest. He started Pharmalot while at The Star-Ledger of New Jersey and previously worked at New York Newsday and Investor’s Business Daily. Email Ed Silverman at ed.silverman@wsj.com, and follow him on Twitter @Pharmalot.